The rise of the and small and medium-seized enterprises in Saudi Arabia is one of the first signs of how such businesses are reshaping the national economy. 

These enterprises are vital drivers of employment, innovation, and local industry development, contributing significantly to the kingdom’s broader strategic objectives to diversify its economy under Vision 2030.

That said, their sustained success relies on navigating a multifaceted landscape shaped by global dynamics, human capital factors and financial projections.

I would start the list of challenges with the trade war between the US and China, because of its global implications on supply chains and operational costs especially for SMEs, which are vulnerable more than the major firms and brands, which could pass on the cost increase to customers.

These tariffs have implications for Saudi Arabian SMEs that rely on components manufactured in China. These tariffs increase the cost of importing Chinese parts, thereby elevating production costs and potentially disrupting supply chains.

Let’s say a Saudi SME involved in electronic device assembly that depends on Chinese-made microchips could see its costs surge due to tariffs. This not only reduces profit margins but also compels the company to seek alternative suppliers or domestically produced parts, which may not be readily available or sufficiently cost-effective.

Consequently, Saudi SMEs need to diversify their supply chains and consider local or regional sourcing options to mitigate the impact of such tariffs and ensure sustainable operations.

The second on the list is that SMEs traditionally face the challenge in recruiting talent, but for small and medium-sized enterprises, the struggle is even more pronounced. They need to find innovative strategies to differentiate themselves from larger competitors in the talent race. Small companies need to remain competitive in salary and benefits. But there’s a solution to this obstacle, as offering the highest compensation is not always necessary to attract talent for SMEs.

When candidates are genuinely convinced of the company's values, the role, and its growth opportunities, they often consider accepting slightly lower  -- but it should be definitely fair -- pay. A candidate, for example, could accept a SAR23,000 a month instead of a SAR30,000 for a specific job with a big company, but they wouldn’t definitely accept SAR10,000 in a competitive market, because the latter is unfair.

The third challenge facing SMEs is profitability projections. Profitability projections are critically important for the sustainability of SMEs, as they serve as a fundamental indicator of a company's potential for long-term growth and stability.

A practical example for a Saudi SME is a locally owned catering company that relies on imported ingredients and equipment; if its profitability projections are overly optimistic and do not account for fluctuations in commodity prices or supply chain disruptions, the company may jeopardize its long-term sustainability by overexpanding or taking on excessive debt based on wrong growth expectations.

Furthermore, the right profitability projections provide credibility to potential investors and financial institutions, facilitating access to funding beyond initial government support measures initiatives.

The Saudi government financial support in in the initial stage of SMEs is crucial, as operating costs, such as wages, utilities, raw materials, rise due to inflation and supply chain disruptions. This makes SMEs often face liquidity shortages that affect their day-to-day operations. Ultimately, the goal is for SMEs to transition from dependence on external aid to autonomous enterprise management, ensuring their growth and survival in an increasingly volatile economic environment and competitive market.